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01 20
i ss u e
S U STA I N A B I L I T Y R E P O RT
Creating a Sustainable
Carbon Neutral
Built Environment
Sustainability Report 2020 01
Contents 01 20
i ss u e
02
Message from Group CEO
04
ARA ESG Overview
11
ARA Property DNA
12
ESG and Real Estate Investment
17
ARAgreen is a Sustainability
Report for FY2020
WorldGBC Net Zero Carbon published by ARA Asset
Management Limited.
Buildings Commitment
About ARA
ARA Asset Management
Limited ("ARA", "ARA Group"
or the "Group") is the largest
real assets manager in Asia
Pacific with approximately
US$92 billion1 in gross assets
under management by the
Group and its associates.
18 ARA Group operates a
global platform with a focus
Corporate Social Responsibility
on APAC, managing public
at Fortune REIT and private investment
funds that invest across
traditional and new
23 economy real estate assets
spanning office, retail,
Fortune REIT Integrates Inclusive residential, logistics and
Concepts into its Largest Ever AEIs data centres, as well as
private real estate credit
24 and infrastructure.
Staff Well-Being in the Workplace: Headquartered in
Reflections from the Pandemic Singapore with more
than 1,400 employees
worldwide, ARA’s vertically
integrated business
includes development
and value-add asset
28 management capabilities,
an in-house capital
LOGOS Leads the Way in Sustainability raising team, and
and Social Responsibility property management
expertise in local markets
33 where ARA invests and
manages assets. With a
United Nations-Supported Principles for resolute focus on creating
Responsible Investment Commitment sustainable value, ARA
manages funds on behalf
of many of the world’s
largest pension funds,
34 sovereign wealth funds,
and financial institutions.
ARA Venn: The 1-1-1 Initiative at
the Heart of Our ESG Policy For more information, visit
www.ara-group.com.
39
Suntec REIT Creating Value for 1
Includes assets under
a Sustainable Future management by ARA Asset
Management Limited and
40 the Group of companies
(“ARA Group”) and its
Appendices Associates as at 30 June 2021.
02 ARA Asset Management Limited
Message From Group CEO
S
ustainability remains at the forefront of the world undergoes one of the most rapid urbanisation
ARA’s efforts to help achieve meaningful surges in human history, further exacerbating the problem.
change in our industry. We aspire to both lead The industry must act now and improve, at the very least,
and learn from industry peers and the broader the energy efficiencies of the properties we utilize and
stakeholder community. We gladly share the highlights of manage. We believe all have the capacity to take action
our journey in our 2020 Sustainability Report. and pursue both purpose and profit2.
WHY IT MATTERS DRIVING CHANGE THROUGH ACTION
The global trend toward prioritizing environmental, social ARA has been a pioneer in many aspects of our business,
and governance considerations is a movement to which and over the past decade, we have made tremendous
ARA proudly commits. We operate a diversified, multi- progress towards creating a healthy, equitable, and
product funds management platform in both public and resilient built environment. In 2021 we formally committed
private markets. The scale of our business covers a large to the United Nations-supported Principles for Responsible
footprint across real estate, infrastructure, and private Investment, and we also signed the World Green Building
credit in numerous jurisdictions. It is, therefore, imperative Council’s Net Zero Carbon Building Commitment. These
that we invest and operate responsibly and sustainably in twin pledges demonstrate our commitment to integrating
managing the assets of our clients over time. ESG considerations into our investment and asset
Buildings produce nearly 40% of annual global carbon management activities and decisions. Being the largest
emissions, making the built environment one of the real assets manager in Asia Pacific, we firmly believe
biggest contributors to global warming. Global building that our choices and actions can positively impact the
stock is expected to double in gross floor area by 2060 as 1
environment and the communities in which we operate.
1
https://architecture2030.org/buildings_problem_why/
2
https://www.london.edu/think/how-great-companies-deliver-both-purpose-and-profit
Sustainability Report 2020 03
In 2021 we formally committed to the United Nations-
supported Principles for Responsible Investment, and
we also signed the World Green Building Council’s
Net Zero Carbon Building Commitment. These twin
pledges demonstrate our commitment to integrating
ESG considerations into our investment and asset
management activities and decisions.
We seek to assess thoroughly the ESG attributes of We promote a safe and healthy working environment,
the properties we manage, provide transparent and we also champion a variety of community initiatives,
monitoring and reporting, and implement specific many of which are employee-led. With the challenges
strategies, such as utilizing renewable energy sources brought on by the pandemic, we are reminded of our call
and smart building technology to achieve tangible to service as a company and as individuals.
results. At present, approximately one-quarter of our
properties have achieved green certification, and 60% of COLLABORATING FOR FUTURE
our property portfolio is included in GRESB assessments, Finally, we observe that we are all in this together.
the global ESG benchmark for real assets. The Group Collaboration and collective action will be essential for
also supports green financing initiatives, having securing any hope of success. The consequence of failure will be
green loans exceeding S$1 billion to date, with plans to an existential crisis (for all), so we must all be mindful of our
double this volume over the next few years. capacity to influence and our obligation to do right.
Since our founding in 2002, ARA’s dual aspirations
EMPOWERING OUR PEOPLE have been to be a best-in-class manager and a built-
While taking care of our physical real assets is critically to-last business. We, therefore, necessarily choose to
important, we also aim to nurture our most valuable embrace sustainability in support of our continuing mission
asset at ARA—our people. Our diverse global workforce to achieve desired outcomes for all our stakeholders.
is united through our core corporate values: Respect
◊ Excellence ◊ Integrity ◊ Teamwork. We strive to Thank you.
preserve a culture of excellence and create a thriving
work environment that promotes innovation, diversity
and inclusion. The result is a highly engaged workforce
where each employee is empowered to make an impact
and encouraged to lead by example in embracing
sustainability as a value, which is how we hope to achieve
Mr Moses Song
our net-zero carbon goals. Group Chief Executive Officer
04 ARA Asset Management Limited
ARA ESG Overview By Tang Boon Kang
SUSTAINABILITY FRAMEWORK
AND SUSTAINABILITY
STRUCTURE
T
ARA Sustainability Framework is
his year’s ARA Sustainability Our vision is to create a leading established based on three strategic
Report takes the form of a sustainable and carbon neutral real pillars: Environmental Sustainability,
sustainability magazine, assets management business. Our People & Community, and Governance
which showcases different mission is to demonstrate social & Ethics. These pillars are the
perspectives on what sustainability and environmental responsibility foundation of our business strategies
means to our colleagues from by being a business that delivers and guide us to achieve our
various business units. The topics in outperformance for our stakeholders. sustainability objectives. We are
the magazine articles range from We seek to protect and preserve the committed to deliver long-term value
integrating environmental consideration planet in pursuit of carbon neutrality by delivering sustainable performance,
into the investment process, corporate in our business and support positive investing in our people and the
social responsibility efforts, reflections change as an industry advocate. community, and creating a positive
from the pandemic, and sustainability ARA recognizes that sustainability impact to the built environment.
in logistics real estate and private is a perpetual commitment and The table below shows our
debt. The ESG overview, along with the through our sustainability principles sustainability commitments:
aforementioned articles, collectively and responsible actions. We seek to
satisfy the GRI requirements. “A”dvance with inclusion and diversity;
Sustainability has taken on uphold “R”esponsible investment and
greater prominence and attracted governance; and “A”dvocate a net Environmental Sustainability
global attention in recent years. As zero built environment. We are committed to achieve net
zero carbon in our business by 2050.
a responsible real assets manager,
ARA has a fiduciary duty towards AWARDS We are committed to improve
its investors and stakeholders to ARA has clinched numerous awards energy and water efficiencies
at our properties to reduce the
invest responsibly. As we progress and accolades1 in recognition of its
environmental impact.
into the future, we must address the sustainability efforts over the years.
environmental and social related To date, we have garnered more than
issues facing the world today, and 120 ESG awards and obtained over
integrate ESG considerations into our 50 green building certificates for our People & Community
business decisions to align with the properties. Below are some examples We are committed to provide a safe
and inclusive workplace, invest in
broader societal objectives. of our achievement in FY2020:
training, and develop our people
to achieve their full potential.
We are committed to create a
positive impact on the communities
Best Sustainable REIT Real Estate Investor Best Health & Excellence in Singapore Corporate that we operate in.
Fund Manager (Asia of the Year (Asia) – Wellbeing Program Workplace Wellbeing Renewable Energy
Pacific 2020) – Asset The Asset Triple A Asset Winner – HRD Awards Winner (Gold) – Company of the Year
Management Awards Servicing, Institutional Asia 2020, Key Media HR Excellence – Frost & Sullivan 2020
2020, Capital Finance Investor and Insurance Awards 2020, Human Best Practices Awards
International Awards 2020, Resources Online
The Asset
Governance & Ethics
We are committed to operate with
high ethical standards by conducting
LEED Platinum, Gold BCA Green Mark NABERS energy and Energy Star ratings for 5 Star GRESB
business activities in compliance
and Silver awards Platinum and water ratings for our our properties in China ratings for our listed with legal and regulatory
for our properties in Gold ratings for properties (mainland) and the REIT and Private Fund
Singapore, Korea, our properties in in Australia United States since participation requirements, and our Codes of
China (mainland), and Singapore
the United States Ethics and Business Conduct.
1
Not an exhaustive list. For a full listing of ARA awards and accolades, please refer to www.ara-group.com.
Sustainability Report 2020 05
ARA Sustainability Steering
Committee (“SSC”) takes the
overall lead in setting sustainability
strategies, business practices, and
performance targets. Chaired by the
Group CEO, the SSC ensures that
long-term value creation is achieved
through integrating ESG factors
within the Group’s operations. The
SSC reports to the ARA Board, which
provides overall stewardship and
strategic direction on sustainability
management. The SSC is also assisted
by the Sustainability Taskforce
(“ST”), which carries out the action
plans and monitors the Group’s
sustainability performance. The ST (From left to right: Tang Boon Kang, Group Governance & Sustainability Senior Director, Cheryl Seow,
Assistant Group CEO and Group CFO, Moses Song, Group CEO and Group CIO, Ng Beng Tiong,
comprises cross-functional team
Deputy Group CEO and Group COO, Pauline Lim, Group Corporate Office Senior Director)
members from various business
units with dedicated sustainability
responsibilities. strategic pillars and aligned to the United Nations Sustainable Development
Goals (“SDGs”). More information on our stakeholder engagement and
STAKEHOLDERS ENGAGEMENT materiality assessment can be found in Appendix A.
AND MATERIALITY ASSESSMENT
Strategic Pillars Material Factors Commitments Corresponding SDGs
Stakeholders are individuals or
groups with vested interest in ARA’s Governance Economic Operate with high ethical
& Ethics performance standards by conducting
strategies and development plans. business activities in
Corporate compliance with legal and
These stakeholders are affected by
governance2 regulatory requirements,
ARA’s sustainability efforts which and our Codes of Ethics
and Business Conduct.
have an impact on the society and
People & Employment Provide a safe and inclusive
environment as a whole. We strive to
Community practices workplace, invest in training
build a symbiotic relationship with and develop our people to
Talent achieve their full potential.
our stakeholders through effective retention and Create a positive impact
development on the communities where
engagement to understand their
we operate in.
views, and arrive at a coherent Quality of
assets and
decision and meaningful outcome. services
We have conducted materiality Environmental Energy and Achieve net zero carbon
assessment with our stakeholders Sustainability carbon in our business by 2050.
footprint Improve energy and
(and their representatives) and water efficiencies at our
Water properties to reduce
identified the material factors which management environmental impact.
are relevant for FY2020, with no
changes from the prior year. These Environmental
compliance
material factors are mapped to the
2
This is covered in the relevant announcements in our website at www.ara-group.com.
06 ARA Asset Management Limited
GOVERNANCE
AT A GLANCE
Board of Directors Engaging the Industry
Board diversity with a wealth of experience
Over
3 6 30
memberships in
female directors male directors associations and
industry bodies
Business Ethics and Compliance Enterprise Risk Management
UN-Supported PRI
alignment underway
4 Over
4
core values – 40 categories of
0
Respect, chapters of ARA key risks addressed3
Excellence, Sustainability – Strategic,
Integrity, Policy on material cases of corruption, Operational,
Environmental, fraud, lawsuits, data breaches, Financial,
Teamwork
Social, and non-compliance with Compliance
Governance laws and regulations
CORPORATE GOVERNANCE BUSINESS ETHICS AND COMPLIANCE
ARA is committed to ensuring that the highest standard Our Code of Ethics and Code of Corporate Governance
of corporate governance is practiced throughout the are founded on the ARA’s core “REIT” values – Respect,
Group. As custodian of our investors’ assets, our corporate Excellence, Integrity, Teamwork. These values guide our
governance policies and processes safeguard the trust business conduct and engagement with stakeholders.
placed in us as we strive to deliver outperformance while Our ARA Sustainability Policy4 provides clear policies
maintaining the highest ethical standards. and guidelines that cover issues such as board matters,
corporate governance, compliance, operational matters,
BOARD OF DIRECTORS employees, other stakeholders, environmental approach
The ARA Board of Directors (the “Board”) works with and sustainable management. All employees are required
management and is responsible for the long-term to complete annual declarations to acknowledge their
success of the organization. The Board reviews its size compliance with these policies.
and composition from time to time to ensure a diverse mix ARA adopts a strict zero-tolerance stance against
of international experience, expertise, gender, age and corruption, fraud, bribery, money-laundering and non-
tenure to strengthen its decision making. The current Board compliance of ESG laws and regulations. Our compliance
comprises nine members - three female and six male - who framework comprises well-defined policies and checklists,
are business leaders in the fields of real estate, investing, monitoring mechanisms of regulatory requirements, and
finance, banking and technology. With their collective structured training to manage these compliance risks in a
industry knowledge, network and experiences, the Board holistic and systematic manner.
and the management team are committed to drive
sustainable growth for ARA and its stakeholders.
3
Refer to Appendix B for more details.
4
Refer to Appendix C for more details.
Sustainability Report 2020 07
SOCIAL
AT A GLANCE
Engaging our Staff Best-In-Class
Assets and Services
Growing with ARA
31
hours of training per employee
0 material incidents of
Global Staff Strength 46% non-compliance with
health and safety of
~1,400
female
representation
64% products and services
employee participation in
across workplace satisfaction survey5
22 49% 81 properties conducted
tenant satisfaction
nationalities new female hires 4.5/5.0 survey
workplace satisfaction score5
49 properties with AEI
upgrades over the
2% average absentee rate Giving Back to past 3 years
Our Communities
0.04% average lost day rate
0 cases of work-related
38
students awarded with
fatalities ARA scholarship till date
0 cases of employee Over
discrimination &
improper labor 30
practices major CSR initiatives
SOCIAL RESPONSIBILITY Global Staff Strength
ARA is committed to fostering a positive, inclusive, and diverse work
Singapore 541
environment that attracts, motivates, and retains the best talent. We believe China (mainland) 511
that our people and properties are enablers of the economic and social Malaysia 127
development of our communities. This is achieved through our active community Australia 94
India 38
engagement initiatives, and providing high quality assets and services.
Hong Kong SAR 35
Indonesia 29
OUR PEOPLE Korea 24
At ARA, our people are our most valuable assets, and we believe in nurturing Others 6
29
our employees for the challenges of tomorrow. We create an environment where Total 1,428
teamwork and collaboration are imbued within our business, and employees
feel engaged working together. Nationality
Employee communication is an essential tool to maintain strong working Chinese 550
relationships among colleagues, build trust, and increase work satisfaction. Singaporean 437
We promote camaraderie and connectivity through various platforms such as Malaysian 186
Australian 99
weekly company publications, regular townhall sessions, and ARA’s intranet
Indian 44
portal – MyARA to share news, strategies, and insights, and gather feedback
Indonesian 32
across the Group. Our open-door policy allows employees to raise any concerns Korean 23
about issues relating to their employment. British 15
Others7 42
Total 1,428
5
Average over the last three years.
6
Others comprises New Zealand, Spain, United Kingdom, United States, Vietnam.
7
Others include American, Belgian, Burmese, Canadian, Filipino, French, German, Greek, Hungarian, Irish, New Zealander, Portuguese, Spanish, Vietnamese.
08 ARA Asset Management Limited
EMPLOYMENT PRACTICES GIVING BACK TO OUR COMMUNITIES
As an equal opportunity employer, we attract, develop ARA made an endowed contribution of S$4 million8 to
and retain the best-qualified employees through fair pay establish the ARA Scholarship with Singapore Management
practices. The remuneration ratio of men to women is University. The scholarships are awarded yearly in perpetuity
generally on par across the organization and almost half of and are bond-free. The goal is to motivate students to
our new hires in FY2020 are female. achieve greater heights and build a better future for
Our employee benefits programme focuses on themselves and their families. We believe that this creates
employees’ health and well-being, which include medical, a social multiplier effect which uplifts the local communities.
insurance, leave and other benefits such as flexible work In addition, the scholars are offered internships and job
arrangements, staff engagement initiatives, mobile opportunities with ARA.
phone allowance and subsidized rates for fitness centre During the COVID-19 pandemic, ARA, together with The
memberships and local attractions. Straits Trading Company and JL Family Office, launched a
S$5 million SME Help Fund (which was later increased to
TALENT RETENTION AND DEVELOPMENT S$8 million) to help local small and medium enterprises tide
Investing in employees’ professional development is vital to over the outbreak by providing cheaper, quicker access
developing a sustainable competitive advantage for our to short-term funding. Other initiatives include providing
business. Training & Development helps our employees with rental rebates and reliefs to our tenants to protect jobs
their career progression by equipping them with relevant and support their business cashflows. Our property
skills and knowledge to improve performance, enhance management teams also helped our retail tenants market
employee engagement and retention, and increase their products online to generate more sales.
employee empowerment. In FY2020, ARA employees The Group also supported causes that provide
averaged 31 hours of training, with our male and female donations and essentials to various groups of people who
colleagues averaging 33 hours and 28 hours respectively. are adversely affected by the pandemic. Besides charitable
donations, we encourage our employees to volunteer their
time in supporting community outreach programmes such
as The Purple Parade, Grant-in-aid Brighten Children’s
AVERAGE TRAINING HOURS BY EMPLOYMENT CATEGORY
Lives, Red Cross Society and Blood Donation Drive. We
41.6 believe that staff voluntarism promotes a sense of
32.2
purpose and fulfillment when we help improve the lives
of others. Dedicating their time to the volunteering work,
24.5
our employees embrace kindness, patience and resilience
which bring positivity to the workplace.
Senior Executive & Below Middle Management Senior Management QUALITY OF ASSETS AND SERVICES
ARA believes that high quality assets and property
management services improve the quality of life, comfort
OCCUPATIONAL HEALTH AND SAFETY and connectivity for our occupiers. This in turn attracts
ARA is committed to providing a safe and healthy work good tenants and high footfall, which generate higher
environment that contributes positively to the general investment returns. We continue to prioritize elements
well-being of our employees. In FY2020, there were five of sustainable design and planning during acquisition and
reported cases of minor work-related injuries relating to asset enhancement of the properties. Leveraging on property
trips, slips and falls. Safety measures such as additional technology initiatives, we are able to embed innovation and
training, installing warning signs, and regular reminders productivity into our property management operations, thus
were implemented to minimize further occurrences. transforming our properties into smart buildings.
8
Inclusive of dollar-to-dollar matching from the Ministry of Education’s Matching Grant.
Sustainability Report 2020 09
ENVIRONMENTAL
AT A GLANCE
Environmental Energy and Water Resource
Stewardship Emissions Management Management
GRESB participation by
18 REITs and Private Funds
24% 24%
decrease in energy consumption decrease in water
and consumption
Sustainability Reports issued by 29% and
10 REITs and Private Funds decrease in energy consumption 29%
intensity decrease in water
consumption intensity
ARA Property DNA Framework
5 Pillars
29%
decrease in GHG emissions
Established Green Finance
and
Framework
34%
decrease in GHG emissions
S$1.2 billion intensity
Green Loans obtained Waste Management
0 material cases 2,785
of non-compliance
with environmental laws
18 GWh tonnes of waste
recycled
renewable energy generated
and regulations across our portfolio
OUR ENVIRONMENT to curb the spread and remote working arrangement
Buildings contribute approximately 40% of the global energy became the default for many of our tenants. Further safe
consumption and greenhouse gas ("GHG") emissions, and management and social distancing measures were put
25% of water consumption worldwide. As a responsible in place to restrict the number of occupants and visitors
real assets manager, ARA is committed to minimizing the at our properties. This led to lower footfall and physical
environmental impact of our buildings and enhancing our occupancy, which in turn resulted in a decrease in the
operational efficiencies to create sustainable value. consumption of resources at our properties. Therefore, the
With grid electricity being the main source of energy, FY2020 environmental data included in this report is not
consumption by our buildings will translate into carbon representative of our operations pre-pandemic.
emissions into the environment. At ARA, we recognize the The subsequent environmental sections cover the energy,
importance of reducing our carbon footprint through the GHG emissions, water, and waste information relating to our
efficient use of energy and this reduces our operational REITs and Private Funds business units in the scope of this
cost to yield a higher investment return. While we do report. Further details can be found in Appendix D.
not have operational control over our tenants’ resource
consumption, considerable efforts have been deployed at ENERGY AND CARBON FOOTPRINT
the property level to minimize wastage, foster conservation, ARA’s energy usage is derived from a mix of direct
raise environmental awareness, and enhance the green and indirect sources. Direct energy source makes up
features of our buildings. approximately 2% and is produced by the burning of fuel
The global outbreak of COVID-19 has significantly on-site for operational purposes. This provides energy for
changed the ways in which we live and work. Many cities heating, cooking and backup generators at the properties.
implemented lockdown measures for parts of last year The rest of our energy usage is from indirect source, which is10 ARA Asset Management Limited
produced by external electricity suppliers through the grid. WATER MANAGEMENT
With grid electricity currently being the main source of Water is an essential and integral part of our building
energy for our properties, higher electricity consumption operations. Our water supply is derived from municipal
directly translates to higher carbon emissions, leading to sources with the majority of consumption attributed
climate degradation. We strive to continually improve our to cooling towers, toilets, washing activities and
energy efficiency and achieve a lower carbon footprint landscaping. We continue to step up on our efforts to
through green initiatives such as installation of solar panels, optimize water efficiencies by upgrading water fixtures,
automated electricity meters, motion sensors equipment collecting stormwater for non-potable uses, detecting
and energy efficient LED lighting fixtures. water leakages and conducting outreach programmes
In FY2020, the total energy consumption and intensity on water conservation.
for our properties were 547.0 GWh and 15.5 kWh/sqft, In FY2020, the total water consumption and intensity
representing a decrease of 24.3% and 29.3% year-on-year for our properties were 2,009,982 m3 and 0.06 m3/sqft
respectively. This was mainly due to lower building usage respectively, representing a 24.1% and 29.2% decrease
during the year. The corresponding total GHG emissions year-on-year respectively.
and GHG emissions intensity were 265.1 kilotonnes CO2-e
and 7.5 kgCO2-e/sqft, representing a decrease of 28.8%
and 33.5% year-on-year respectively.
ENERGY CONSUMPTION AND INTENSITY WATER CONSUMPTION AND INTENSITY
Energy Consumption Intensity (kWh/sqft)
Water Consumption Intensity (m3/sqft)
0.10
800.0 25 3,000
21.9 0.08
Energy Consumption (GWh)
Water Consumption ('000 m3)
20
600.0
15.5 2,000 0.06
15
400.0 0.05
722.5 2,649.4
10
547.0 1,000 2,010.0
200.0
5
0 0 0 0.00
2019 2020 2019 2020
Total Energy Consumption Energy Consumption Intensity Water Consumption Water Consumption Intensity
WASTE MANAGEMENT
GHG EMISSIONS AND INTENSITY
ARA adopts the 3R's of waste management – Reduce,
GHG Emissions Intensity ( kgCO2-e/sqft)
600.0 15
Reuse and Recycle, which leads to responsible waste
GHG Emissions (kilotonnes CO2-e)
11.3
management practices. We continue to focus on reducing
400.0 10
4.0 waste and improving waste outcomes at our properties.
7.5
Recycling bins have been placed at strategic and high
2.3
200.0 5
368.2 traffic areas to encourage tenants and shoppers to dispose
262.8
their waste responsibly and considerable efforts were
0 0
2019 2020 deployed to support good waste management practices
Scope 2 Scope 1 GHG Emissions Intensity such as using biodegradable products.Operations Control / PropTech comprises the technologies we employ Asset Pillar provides a
Customer Services & to amplify and scale our capabilities to delight our standardized measurement of the
Tenancy Management / clients and stakeholders in their customer quality of an asset in terms of
Governance & Financial Control / journeys having regard to their comfort and various attributes grouped into
Procurement / well-being, safety, security and privacy. PropTech 6 categories: Physical, Financial,
IT / augments our efforts to realise productivity and Environmental, Mechanical &
Leasing & Licensing / efficiency gains and to hone our operational Electrical, Security & Amenities
Marketing Communications prowess within the assets we manage. and Building Management.
ESG Pillar provides a structured and Customer Engagement & Experience Pillar
quantitative measurement of the quality provides a model guideline to establishing the
of an asset in terms of various attributes brand DNA in all our assets. The pillar is split in to three
grouped in 3 categories: Environmental, key elements, namely: Marketing & Communications,
Social and Governance. Community Engagement and Customer Experience.ESG and
Real Estate
Investment
to the environment and climate change representing all
five of the principal risks4.
While the rising awareness about climate change has
definitively impacted the environment and governance
components in ESG, there is also a spotlight on the social
factor amid the COVID-19 pandemic. Although profit is
a major deciding factor in real estate investing, ESG has
taken on an increasingly significant role in the investment
Dr Yang Liang Chua and Sebastian Seah
Group Research & Analytics decision-making process. ESG has moved beyond lip
service to become embedded in the corporate’s risk
management agenda and the investment boardroom.
E
ESG – THE NEW BLACK While ESG has become more predominant, there is
nvironmental, social, and governance (ESG) definitely more room for improvement. For instance, there
considerations have gained traction among is still a general lack of standardization in terms of ESG
global real estate investors and their stakeholders benchmarks and methodology across geography and
over recent years. This is due to the increased asset types.
attention on climate change, where there are fundamental In the following sections, we will explore the drivers
shifts from greater regulatory traction to heightened of change and shortcomings. Then, we will conclude with
awareness of the economic costs and benefits of climate a glimpse into what we have accomplished at ARA with
change. This prevailing trend is here to stay. respect to ESG.
Recent estimates put the economic cost of climate
change at US$7.9 trillion by 20501. According to a study by DRIVING THE SHIFT
Aon, the global economic loss arising from natural disasters As with any emerging trend where the impact is more
over the last decade (2011–2019) has been the costliest at strategic and long term, government intervention and
US$2.98 trillion. This figure is US$1.1 trillion higher than in the support are often necessary to shift market behaviours,
earlier decade (2000–2009) . Last year, such economic
2
especially when the benefits are not immediately felt. If
loss was US$268 billion, a 15.5% increase from US$232 billion the issue is left entirely on its own, the market response to
in 20193. In the ‘Global Risk Landscape Report’ published climate change would be slower.
by the World Economic Forum, seven of the top ten risks The regulatory environment for climate change has been
for businesses are climate related, with factors connected gathering pace and we are now witnessing adjustmentsSustainability Report 2020 13
in the private marketplace. Interest more inspired to obtain green building improves reputational, financial, and
and demand for ESG considerations certifications, such as the Leadership in operational performance.
have been increasing across all Energy and Environmental Design (LEED)
real estate asset types. While the and Building Research Establishment CHANGING TRENDS IN INVESTOR’S
COVID-19 pandemic has certainly Environmental Assessment Method DEMANDS
raised awareness about the trend, a (BREEAM). According to the International Globally, interest and demand for ESG
rising body of empirical evidence in Green Building Adoption Index, there considerations have been increasing
recent years has pushed ESG initiatives has been a significant increase in the across all real estate asset types.
further up on the investors’ agendas. adoption of green buildings globally 9
The COVID-19 pandemic has drawn
as 18.6% of the space in ten markets further awareness on the importance
REGULATORY ACTIONS GAINING across Australia, Canada, and Europe of ESG, with an expanding group of
TRACTION was certified ‘green’ in 2018, in contrast investors expecting significant ESG
In order to mitigate the impact of to 6.4% in 2007. components in their investments.
climate change, many countries According to a 2019 PERE survey, most
have pledged their goals for carbon ESG GOES BEYOND ‘GOOD TO HAVE’ institutional real estate investors have
neutrality, with nearly 200 countries Paying attention to some ESG considerations in their
committed to the Paris Climate environmental, social, and investment decisions, with 70% of
Agreement . As at December 2020,
5 governance (ESG) concerns the respondents having explicit ESG
six countries have legally binding net-
does not compromise returns— policies in place11. Global sustainable
rather, the opposite.
zero emissions targets, and at least investment has grown to more
another 14 countries are discussing or Results of > 2,000 studies on the impact of than US$30 trillion in assets – a 68%
ESG propositions on equity returns
have already included targets in their increase since 2014 and a tenfold
policy documents6. The world’s top 50 Share of positive findings increase since 200412. This investment
economies are reportedly committed is likely to continue growing. As an
to investing US$583 billion to boost emphasis, Blackrock has stated in
green efforts in 2020 . 7
their annual letter in 2020 that they
The property sector, which
63% would exit investments that present a
accounts for approximately 38% high sustainability-related risk13.
of global carbon emissions8, has a According to Preqin data, both
significant share of these sustainability the average fund size and total
Share of negative findings
efforts. Countries have adopted amount of capital raised in the
various green regulations and policies global real estate sector with ESG
8%
to help reduce carbon emissions from commitments have been rising over
buildings. Specifically, the Global the past five years. The drop in 2020 is
Figure 1. Study of Impact of ESG Proposition
Real Estate Sustainability Framework on Equity Returns10 likely due to the pandemic as border
(GRESB) and the United Nations- Source: Gunnar Friede et al., “ESG and financial closures around the world crimped
performance: Aggregated evidence from more than
supported Principles for Responsible 2000 empirical studies.” Journal of Sustainable global trade and travel. The annual
Finance & Investment, October 2015, Volume 5,
Investment (PRI) have published data Number 4, pp. 210-33; Deutsche Asset & Wealth growth rate of the average ESG fund
Management Investment; McKinsey analysis
on real estate sustainability to help size from 2016 to 2019 is also higher
investors incorporate ESG factors into Based on research studies, at 32.1%, compared to their non-ESG
their investment decision making and asset owners who implement ESG counterpart at 20.6%. The growing
portfolio management. policies in their portfolios (Figure 1) interest in ESG is not just a matter
As environmental accountability will see practical benefits, besides of paying lip-service. Instead, it has
gains greater importance on the meeting investor and government motivated investment managers to
agendas of investors and tenants, requirements. The data shows that park more capital in environmentally
asset managers and developers are ESG considerations in portfolio strategy sustainable investments.14 ARA Asset Management Limited
FINANCIAL GAINS Cash Flow Parameter Effect Range Mean Median
A growing body of empirical evidence Rental Income Increased 0.0%-23.0% 6.3% 4.6%
points towards the financial benefits Occupancy Increased 0.9%-17.0% 6.0% 4.3%
of employing ESG initiatives. Operating costs Inconclusive -14.3%-25.8% -0.4% -4.9%
Yield (risks) Decreased 0.36%-0.55%-point 0.46%-point 0.46%-point
According to Aalto University’s study
Sales price Increased 0.0%-43.0% 14.8% 14.1%
in 2020, capital, rental, and vacancy
Figure 2. Effect of Green Certification on Cash Flow Parameters and Sale Prices of Commercial
rates of green-certified commercial Investment Properties16
properties command a premium
over their non-green counterparts
GLOBAL CHART REAL ESTATE FUNDRAISING
(Figure 2). Separately, a McKinsey (USD mil)
survey revealed that almost 80% of 1,400 100,000
1,200
consumers in Europe and the United 80,000
1,000
States are willing to pay a premium for 60,000
800
products, including buildings, if they 600 40,000
performed equally compared to a 400
20,000
non-green alternative14. 200
0
MSCI data also affirms that 0
2016 2017 2018 2019 2020
companies with high ESG ratings have Average Fund Size (ESG)-RHS Average Fund Size (non-ESG)-RHS
Total Capital Raised (ESG)-LHS Total Capital Raised (non-ESG)-LHS
greater profitability as well as lower
Figure 3. Global ESG-committed Real Estate Fundraising17
systematic and tail risk. Such companies
are often more competitive, experience
SYSTEMATIC VOLATILITY GROSS PROFITABILITY
fewer major drawdowns and volatility,
OF ESG QUINTILES OF ESG QUINTILES
and have lower cost of capital. (Systematic Volatility - Z Score) (Gross Profitability - Z Score)
In addition, a strong ESG position 0.4
0.3
0.3
increases employee satisfaction and 0.2
0.2
productivity, which in turn enhances 0.1
0.1
shareholder returns. A London Business 0 0
School study revealed that over a -0.1
-0.1
25-year horizon, Fortune’s top 100 best -0.2
-0.2
-0.3
companies to work for have recorded
-0.4 -0.3
2.3–3.8% higher stock returns than 01 02 03 04 05 01 02 03 04 05
Mean Current Mean Current
their peers15.
01 = worst ESG quintile and 05 = best ESG quintile
Operationally, green buildings are
able to reduce short-term costs and
LARGE DRAWDOWN FREQUENCY OF TOP VS. BOTTOM ESG QUINTILE
property related expenses. Research by (Number of Incidents)
McKinsey confirms that an effective ESG 7
policy could mitigate rising operating 6
expenses (such as raw-material costs,
5
water, or carbon) that could affect
4
profit margins by up to 60%. Having a
3
good existing ESG programme also
2
reduces the risk of adverse government
1
interventions, especially in countries
0
which are increasingly stringent about Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
sustainability policies for the built Best ESG Quintile Worst ESG Quintile
environment. For example, Singapore Figure 4. Financial Value of ESG18Sustainability Report 2020 15
INCREASED EFFICIENCY, REDUCED OPERATIONAL COSTS ISSUE OF QUALITY
Estimated Share of EBITDA1 at Stake, % For example
Current ESG reporting schemes for
infrastructure investors do not sufficiently
Capital requirements, systemic regulation
Banks 50-60
(“too big to fail"), and consumer protection capture financial risks22. According
Government subsidies, renewable regulation,
Automotive, aerospace and defense, tech 50-60
and carbon-emissions regulation to the report ‘Towards a Scientific
Transport, logistics, infrastructure 45-55 Pricing regulation and liberalization of sector
Approach to ESG for Infrastructure’,
there is no shortage of ESG reporting
Tariff regulation, interconnection, fiber
Telecom and media 40-50
deployment, spectrum, and data privacy
and assessment schemes used by
Tariff regulation, renewables subsidies,
Energy and materials 35-45
interconnection, and access rights infrastructure investors. However, there
Resources 30-40
Resource nationalism, mineral taxes, land- is a lack of financial assessments. The
access rights, community reach, and reputation
Obesity, sustainability, food safety, health and
17 schemes examined in the report had
Consumer goods 25-30
wellness, and labeling
the following issues23:
Market access, regulation of generic drugs,
Pharma and healthcare 25-30
pricing, innovation funding, and clinical trials
1
Earnings before interest, taxes, depreciation, and amortization
• Considerable scope divergence
(including the definition of
Figure 5. Share of Corporate Profit at Stake from External Engagements 19
infrastructure and ESG);
will be raising the standards for new buildings’ energy efficiency by the end of • Measurement bias (including a
2021 to help curb building emissions and combat climate change . Such 20 tendency to use mostly qualitative
government intervention would have significant impact on developers that do measures);
not have any ESG programme in place. According to the McKinsey study, about • Process and input indicator bias (as
one-third of corporate profits could be at risk of being obliterated (Figure 3) from opposed to actual impact or risk
the imposition of tariff regulations. measures); and
• Bias towards measuring impacts
BUT MORE CAN BE DONE
(88% of all disclosures) and much
When all is said and done, there are still areas for improvement. Understandably, the
less the risks to which infrastructure
impact of climate change is not felt equally in each locality, which has resulted in
companies are exposed.
different regulatory standards. There is a general lack of standardized methodology,
nomenclature, and regulations that would foster greater consistency in the
ESG IS HERE TO STAY
measurement and collection of data.
Ultimately, the relationship between
ESG and value is synergistic. Looking
INCONSISTENT STANDARDS
at global market conditions, the
While awareness of the growing significance of ESG has increased globally, there
importance of ESG will continue to
is still a current lack of standardization of benchmarks and methodology across
grow over time, and this trend is not
geography and asset types. Different stakeholders such as data vendors, ESG
going away anytime soon. Both
research providers, issuers, and investors may have their own criteria and terminology.
private and governmental pressures
This inconsistency increases the cost of data collection. It also prevents relevant
are intensifying and there is a growing
comparisons of investments for meaningful insights and performance tracking.
amount of empirical data that help
REGULATORY pinpoint areas for corrective actions
Currently, ESG-scoring firms’ regulations are considerably less stringent and to address climate change. ESG-
have less standardization than regular credit rating firms. The lack of consistent focused investments are expected to
definitions, rules, or processes increases the risk of corporate greenwashing, thus become mainstream as the impact
misleading stakeholders about their organizations’ environmental soundness. of ESG policies become more evident
Measures have been taken to improve the issue. One example is the introduction and significant. Asset owners and
of the UE taxonomy for the classification of sustainable activities in July 2020 . 21 managers who continue to disregard
Touted as the world’s first comprehensive, science-based classification system, it ESG considerations are at risk of
provides a foundation for consolidating taxonomies and regulations in the future. being left behind.16 ARA Asset Management Limited
While there are considerable gaps With a ‘boots on the ground’ approach,
1
Climate impacts ‘to cost world US$7.9 trillion’ by 2050. (2019,
Nov 20). The Straits Times. URL: https://www.straitstimes.com/
world/europe/climate-impacts-to-cost-world-us79-trillion-
in current metrics used to measure ESG, our local teams utilizes the proprietary by-2050#:~:text=Let's%20go!,-Terms%20%26%20conditions%20
apply&text=PARIS%20(AFP)%20%2D%20Climate%20ch-
the consolidation and improvements ARA Property DNA to maximize the ange,on%20Wednesday%20(Nov%2020)
2
Weather, Climate & Catastrophe Insight: 2019 Annual Report.
of such schemes will continue to performance of our assets globally. The (2019). Aon. URL: https://www.aon.com/global-weather-
catastrophe-natural-disasters-costs-climate-change-2019-
accelerate, driven by the growing collection of performance attributes annual-report/index.html
3
Weather, Climate & Catastrophe Insight: 2020 Annual Report.
urgency of climate change and the over time will allow us to strategically (2020). Aon. URL: https://www.aon.com/global-weather-
catastrophe-natural-disasters-costs-climate-change-2020-
importance of ESG. evaluate our assets consistently across annual-report/index.html
4
Report: Global Risk Landscape 2020 – The Integrity Index (2020).
different regions. BDO United Kingdom. URL: https://www.bdo.co.uk/en-gb/
insights/advisory/risk-and-advisory-services/global-risk-
WALKING THE TALK Supporting the ESG pillar is the landscape
5
The Paris Agreement. (2020) United Nations. URL:
At ARA, we believe in walking the talk. Green Connect, which is a green https://www.un.org/en/climatechange/paris-
agreement#:~:text=Today%2C%20189%20countries%20have%20
Established in 2002, our core values rating system for ARA properties in joined,strengthen%20their%20commitments%20over%20time.
6
5 years after Paris: How countries’ climate policies match up
of Respect, Excellence, Integrity various aspects of management, to their promises, and who’s aiming for net zero emissions.
(Dec 2020) The Conversation. URL: https://theconversation.
and Teamwork form the foundation performance, and improvement within com/5-years-after-paris-how-countries-climate-policies-
match-up-to-their-promises-and-whos-aiming-for-net-zero-
of our sustainability journey. As a the framework. This rating system emissions-151722
7
Governments Eye a Green Economic Recovery. Some
leading APAC real assets manager, comprises five grades with actionable Industries Aren’t Convinced. (2020, July 7). The Wall Street
Journal. URL: https://www.wsj.com/articles/governments-
we remain true to our sustainability information and tools for monitoring eye-a-green-economic-recovery-some-industries-arent-
convinced-11594113028
vision and mission, which guide our and managing these assets over time. 8
2020 Global Status Report for Buildings and Construction.
(2020). Global Alliance for Buildings and Construction. URL:
business objectives and strategies. Operationally, each asset manager https://globalabc.org/sites/default/files/inline-files/2020%20
Buildings%20GSR_FULL%20REPORT.pdf
We have a holistic approach to is required to monitor and report the 9
Holtermans, R., & Kok, N. (2018). International Green Building
Adoption Index 2018. CBRE. URL: https://cris.maastrichtuniversity.
integrate sustainability within our performance of their asset based on nl/en/publications/international-green-building-adoption-
index-2018
operations throughout various stages this set of criteria and best practices 10
Gunnar Friede, Timo Busch & Alexander Bassen (2015) ESG
and financial performance: aggregated evidence from more
of the real assets’ lifecycle, and are within each local market. These are than 2000 empirical studies, Journal of Sustainable Finance &
Investment, 5:4, 210–233; Deutsche Asset & Wealth Management
Investment; McKinsey analysis. URL: https://www.mckinsey.com/
fully committed to incorporating standardized to provide regional business-functions/strategy-and-corporate-finance/our-
insights/five-ways-that-esg-creates-value#
ESG components into our corporate consistency and ensure that the results 11
PERE ESG Investor Survey 2019. (2019) PERE News. URL: https://
www.perenews.com/pere-esg-investor-survey-2019-eight-
culture and business model. are comparable geographically. Aside takeaways/
12
Global Sustainable Investment Review 2018. Global Sustainable
We have set out our sustainability from financials, new acquisitions will be Investment Alliance; McKinsey analysis. URL: https://www.
mckinsey.com/business-functions/strategy-and-corporate-
policy statement which encapsulates reviewed through this lens to ensure finance/our-insights/five-ways-that-esg-creates-value#
13
A Fundamental Reshaping of Finance. (2020). Blackrock. URL:
our corporate sustainability culture that the long term ESG objective for https://www.blackrock.com/uk/individual/larry-fink-ceo-letter
14
How much will consumers pay to go green?. (2012). McKinsey. URL:
through three strategic areas: the firm is kept in check. https://www.mckinsey.com/business-functions/sustainability/
our-insights/how-much-will-consumers-pay-to-go-green
governance & ethics; people & As a responsible corporate, we are 15
Edmans, A. (2012). The link between job satisfaction and firm
value, with implications for corporate social responsibility.
community; and environmental fully committed to minimize our carbon Academy of Management Perspectives, 26(4), 1–19.
16
Leskinen N, Vimpari J, Junnila S. A Review of the Impact of
sustainability. Operationally, within footprint. To this end, we have pledged Green Building Certification on the Cash Flows and Values
of Commercial Properties. Sustainability. 2020; 12(7):2729. URL:
our businesses of investment and our commitment to decarbonize the https://doi.org/10.3390/su12072729
17
PREQIN, ARA Research (2021)
asset management, the proprietary built environment by becoming the 18
MSCI data (2021). URL: https://www.msci.com/our-solutions/
esg-investing/what-is-esg
ARA Property DNA, consisting of five first real asset manager in Asia to 19
Five ways that ESG creates value. (2020). McKinsey. URL:
https://www.mckinsey.com/business-functions/strategy-and-
strategic pillars, helps serve our mission be a signatory to the World Green corporate-finance/our-insights/five-ways-that-esg-creates-
value#
to create industry-leading real estate Building Council’s Net Zero Carbon 20
Parliament: Tighter energy-efficiency standards for all new
buildings seeking planning approval from year-end. (2021). The
experiences. Buildings Commitment as well as the Straits Times. URL: https://www.straitstimes.com/business/
property/tighter-standards-for-energy-efficiency-for-all-new-
Good asset management must United Nations-supported Principles buildings-seeking-planning
21
EU taxonomy for sustainable activities. (2020). European
move from the mere concept of for Responsible Investment. Through Commission. URL: https://ec.europa.eu/info/business-economy-
euro/banking-and-finance/sustainable-finance/eu-taxonomy-
assets as brick-and-mortar housing these commitments and a holistic sustainable-activities_en
22
Infrastructure ESG reporting schemes not capturing financial
occupiers to a service. At ARA, we approach to sustainability, we have risks, EDHEC warns. (2021). IPE Real Assets. URL: https://realassets.
ipe.com/news/infrastructure-esg-reporting-schemes-not-
strive to provide customers with mapped out our decarbonization capturing-financial-risks-edhec-warns/10051312.article?utm_
campaign=303642_12.3.21%20ipe%20ra%20top1%200&utm_
an experience conducive to their journey towards achieving net zero medium=email&utm_source=IPE&dm_i=5KVE,6IAI,2MOHJS,R32V,1
23
N. Manocha, and F. Blanc-Brude. (2021). Towards a Scientific
businesses and personal development. carbon by 2030. Approach to ESG for Infrastructure. EDHEC InfrastructureWorld Green Building Council Net Zero Carbon Buildings Commitment
ARA has joined a global industry leadership to decarbonize the built
environment and combat climate change, as a signatory to the World
Green Building Council’s Net Zero Carbon Buildings Commitment. ARA’s
commitment will make a meaningful contribution to a healthy, equitable
and resilient built environment.
In working towards the commitment, ARA Group will:
Commit
Commit to only owning assets that are net zero carbon
under direct control by 2030.
Disclose
Measure and publicly disclose energy consumption and
scope 1 & 2 operational carbon emissions of portfolio
against Science Based Targets. Report progress on asset
level performance and identify opportunities to reduce
carbon emissions while improving energy efficiency.
Act
Develop, maintain, and update a decarbonization roadmap
that includes setting targets for assets within the portfolio.
Implement energy efficiency measures to reduce carbon
emissions, as top priority. Procure renewable energy at both
the asset and portfolio level to compensate for remaining
carbon footprint.
Verify
Verify energy consumption and carbon emission data
annually via independent third-party verification or
asset level building certification. Publicly report progress
against targets.
Advocate
Demonstrate leadership through core business activities as
a leading real assets manager. Engage stakeholders such
as investors, tenants, employees and communities in the
progression to achieve a low carbon environment.Corporate Social Responsibility
at Fortune REIT By Jimmy Ong
Established in 2003, Fortune REIT is the first REIT to hold Hong Kong SAR assets and is currently listed on the Main
Board of The Stock Exchange of Hong Kong Limited. Fortune REIT currently holds a portfolio of 16 neighborhood
malls in Hong Kong SAR with an immediate catchment of tens of thousands of households. Deeply rooted in the
community, our Fortune Malls serve the daily needs of nearby residents, students, and workers.
F
OUR CSR VISION OUR APPROACH
ortune REIT regards corporate social To advance our policy on corporate activities in social,
responsibility ("CSR") as a vital endeavor environmental, and ethical aspects, Fortune REIT has
for sustaining our core competitiveness established a dedicated CSR working group chaired by the
and enhancing brand value. Fortune REIT CEO. The working group holds regular meetings to oversee
acknowledges that it is our responsibility to develop and manage the progress of CSR activities.
shopping malls that coexist in harmony with the
environment and surrounding communities. Our
commitment to this responsibility leads to the continual
growth of shopping malls in local communities.
Our Fortune CSR vision: caring for the elderly; nurturing
CSR Working Group CSR Taskforce
the youth; and creating a better community. (Chaired by CEO) (2–4 members)
FORTUNE REIT
CSR VISION A separate taskforce comprising two to four members
will be set up to run individual CSR projects. Every employee
Creating Caring for
a Better the Elderly
will have an opportunity to be involved in the taskforce.
Community
They would be able to lead a small team, contribute to
the community, and collaborate with external parties. The
objective is to allow our employees to have a sense of
ownership of the CSR project.
Nurturing the YouthYou can also read
